Nifty to consolidate after crossing psychological barrier of 6000

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High drama in parliament and volatility in the markets, albeit within a tight range, summarizes the action for the week.

Most in the analyst fraternity including myself expected the Nifty to cross the psychological barrier of 6000 after the FDI vote in parliament, but markets defied consensus once again and ended up a paltry 0.4 percent for the week at 5907.

FDI in retail is only a sentimental booster and is not expected bring in a gush of overseas funds in the sector, especially the listed entities. Implementing FDI in retail will be a state subject and even those states ruled by parties indirectly supporting the cause may find it politically difficult to introduce the measure. Secondly, the current term of the UPA government ends in 18 months, which will make foreign investors wary of investing immediately.

The mood continues to be cautiously upbeat for upcoming bills in parliament, especially the ones having direct implication on the financial markets such as pension, banking regulation, microfinance and insurance.

Victory in the retail vote may prompt the government into an overdrive on policy measures post the winter session. A decision on the National Investment Board which was postponed last week would be first on the list.

Markets will await industrial output data on December 12, which should show an uptick, followed by inflation which is expected to be in the range of 7.5 percent. This will have a bearing on the statement from the RBI governor during the third quarter review on December 18. A policy action is expected in January.

The Credit Analysis & Research IPO followed by Bharti Infratel’s offering will be a pointer on whether primary market investors have an appetite for quality issues.

The Gujarat elections will kick off on December 13 in two phases. It is widely believed that the results of the election could have a bearing on the outlook for the general elections in 2014.

The euro zone has finally started affecting Germany, whose growth is expected to shrink, with a possibility of recession early next year. Greece, on the other hand, sent out the right signals as it sets out to buy back bonds which will ensure that the rescue package stays on course. America’s “fiscal cliff” issue may continue to create jitters with a possible sell-off if no solution is visible within the next two weeks.

Although the winter session of parliament will continue throughout next week, it is not expected to create any flutter and most of the financial bills should get passed through mutual negotiation. We have already seen the insurance bill getting diluted to accommodate the Bharatiya Janata Party.

I expect the Nifty to resume the upward momentum and consolidate after crossing the psychological barrier of 6000 based on domestic data flow and expectations of further policy measures.

The downside for the market is limited to 5800. The mid-caps and small-caps are back in action, which signifies the return of individual investors to the markets.

I believe domestic investors will be major contributors to the next big move in the markets as the feeling of being ‘left out’ is creeping in as most of them have not participated in the last 1000-point move.

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Ambareesh Baliga has about 25 years of experience in the stock market and has worked with Karvy and Kotak groups in the past. He is a regular market commentator on various business channels. He is a commerce graduate from Calcutta University and a qualified cost accountant.